Apple Will Soon Be the Way You Pay Online and Beyond

Photo: Ariel Zambelich/WIRED

The most impressive number from Apple’s earnings call this week wasn’t how many iPhones it sold or how much money it made. Those numbers are monstrous quarter after quarter. More striking was CEO Tim Cook’s revelation that about 800 million people now have accounts on Apple’s iTunes service. And most of those accounts are tied to credit cards.

That number is astonishing — by comparison, Amazon.com has some 237 million active customers — and it could point toward a new Apple future. As countless rumors hint at the imminent arrival of new Apple products — rumors Cook did nothing to confirm or dispel — the company’s credit-card trove means one new tool is almost inevitable: a payments service. Apple may soon become a way you pay for all sorts of stuff across the web, inside mobile apps, and maybe even as you walk to the counter at a brick-and-mortar retail store.

Yes, there are other payment services. PayPal. Google Wallet. Bitcoin. But Apple is in a unique position. Like Google, it controls the phone. But unlike Google, it has been busy collecting credit card numbers for more than a decade.

Yes, there are other payment services. PayPal. Google Wallet. Bitcoin. But Apple is in a unique situation. Like Google, it controls the phone. But unlike Google, it has been busy collecting credit card numbers for more than a decade.

Hints of a payments platform constitute their own subgenre in the churning Apple rumor mill. This week, for instance, Re/code reported that the company was interviewing executives for top positions “focused exclusively” on building a payments business around “the hundreds of millions of credit cards it already has on file.” During Apple’s prior earnings call in January, Cook said mobile payments “intrigued” Apple and were part of the thinking behind the fingerprint sensor built into the iPhone 5s.

It all starts with those credit cards. PayPal, the reigning king of payments on the net, runs 143 million active accounts, and that’s impressive — except in comparison to Apple. The Cupertino behemoth has managed to acquire such a massive card collection because, since the iTunes store launched in 2003, it has offered a simple, obvious reason for hundreds of millions of people to turn over their credit card numbers. Owning an iPod, iPhone, or iPad makes little sense without an iTunes account for filling up those devices with music, podcasts, videos, and apps. Every piece of Apple hardware doubles as a store for itself.

As a result, Apple is in a position to capitalize on its market dominance and create a broader payments service, one that could help you pay for all sorts of stuff. Such a service might let you buy things online, as PayPal does. But as Cook indicated with that nod to the iPhone fingerprint reader, Apple could also turn the iPhone into a secure way of paying for stuff in the real world, inside brick-and-mortar retail stores. Hold your iPhone up to a scanner on the counter, and you’re done — or with iBeacon, don’t bother coming up to the counter at all. With your credit card already on file, your fingerprint would be the only signature you’d need.

Regardless of how the transaction was made, Apple could get a cut of each payment, and it would also learn more about your behavior. User data–what links people click, what searches they perform, what photos they like–is worth billions of dollars to internet companies. But payment data–information about what people actually buy–is perhaps the most valuable user information of all. Today, Apple isn’t as likely as a Google or a Facebook to use personal data as a means of, say, targeting ads. But that may change. And even if Apple isn’t interested in tracking your individual habits, a payments system can give it a better idea of how the consumers spend money. That can help the company identify the new products and services it should build — or perhaps more importantly, give Apple data to trade back to merchants in order to convince them that allowing their own customers to “pay with Apple” is worth it.

The question is whether those low margins would be enough of an incentive for Apple to offer a mobile way to pay in physical stores, or even offer a “pay with Apple” option next to the PayPal button on internet retail sites.

It’s this last part that’s the toughest trick of all for any would-be payments service. Persuading merchants to accept a new way to pay, payment industry insiders say, can take a while. While it’s true that Apple’s brand and vast user base would be strong selling points, what any merchant cares most about is fees. This necessarily makes payments a low-margin business as providers vie with each other to shave percentages to make themselves the checkout option of choice. The question is whether those low margins would be enough of an incentive for Apple to offer a mobile way to pay in physical stores, or even offer a “pay with Apple” option next to the PayPal button on internet retail sites.

Apple does also have its oceans of user data to offer, and it’s possible that Apple’s design prowess could result in a payment process that’s so pleasing it just gets people to spend more money. Before the company invents such a magic bullet, however, the most likely first step could be payments within apps themselves. Already, the App Store lets users pay for virtual goods in games and upgrades for all kinds of freemium apps. The next step could be to make iTunes a way to make in-app payments for real things, such as Uber rides or Airbnb rooms. That arrangement could be the easiest for Apple to implement, and the most convincing first step for the company and app developers.

“In the end, everybody wants developers making mobile apps for their platforms to make a lot of money,” one payment industry executive says. That’s because, if app developers make lots of money, they’ll build more, better apps, and that helps a company like Apple sell devices where those apps run. That’s no small thing. However much money Apple stands to make if it becomes the next way you pay, it knows that the most important transactions of all are those that involve buying products with Apple’s logo plastered to the back.